The ceiling on gas prices has just been raised.
Oil prices soared past US$103 a barrel for the first time on the basis of the low US dollar and the prospect of lower interest rates driving new money into the oil market.
Prices reached a spike of US$103.5 before lowering slightly on the Asian markets.
Light, sweet crude for April delivery jumped to a new trading record of US$103.05 a barrel in Asian electronic trading on the New York Mercantile Exchange before slipping back to US$102.79 a barrel, up 20 cents, mid-afternoon in Singapore.
BNN's Michael Kane told Canada AM Friday that many energy analysts have put the 'true' price of oil at US$80 -- meaning that more than $20 per barrel is based on the market's speculation on the future worth of oil.
Victor Shum, an energy analyst with Purvin & Gertz in Singapore Shum warned that a price bubble was emerging in the crude futures market.
He said investors ignored market fundamentals that have shown continuous increases in U.S. crude supply while several recent forecasters have lowered oil demand growth predictions for this year due to the slowing economy.
"We've seen seven straight weeks of builds in crude oil inventories. The oil market fundamentals are softening and yet we see record highs being set, day in and day out,'' Shum said.
Shum warned of the possibility of a sharp correction at some point, though unlikely in the near future.
"Right now, there's a lot of trading based on emotion -- emotions are high and that could keep crude oil at elevated levels, but the market faces the risk of a price collapse.''
Federal Reserve Chairman Ben Bernanke said Thursday that the American economy is not immediately threatened with stagflation, a combination of economic weakness and rising inflation -comments that supported the oil prices.
Investors believe that the comments are confirmation that the Federal Reserve will continue to cut interest rates to improve the economy.
"Due to the weakening dollar and the rising fear of inflation, investors have put money into commodities, oil included," Shum said.
"Commodities, as tangible assets, do not face as much inflationary threat as opposed to holding a currency,'' he added. "Even though the value of money is changing, the asset continues to have an intrinsic value."
On Friday, the Japanese government urged the Organization of Petroleum Exporting Countries (OPEC) to increase its production to help ease the record high prices.
"The high crude prices are gradually damaging the global economy. This will damage the economies of oil-producing countries,'' Minister of Economy, Trade and Industry Akira Amari said.
OPEC holds its next policy meeting on March 5. Reported comments from OPEC President Chakib Khelil suggest that the group will either keep production levels where they are or possibly even cut production.
Khelil noted that oil inventories were growing, and that the recent rally in oil prices has been driven by the U.S. dollar's weakness and speculative trades amid geopolitical risks.
Crude prices are within the range of inflation-adjusted highs set in early 1980. A US$38 barrel of oil then would be worth US$97 to US$104 or more today, depending on the how the adjustment is calculated. A direct comparison with daily Nymex prices is difficult because historical data, gathered before the crude futures contract was created in 1983, are based on average monthly prices posted by oil producers.
With files from The Associated Press
